Notes to Consolidated Financial Statements
March 31, 2017
(Unaudited)
Note 1 Nature of Operations
These financial statements represent the consolidated
financial statements of AntriaBio, Inc. (“AntriaBio”), and its wholly owned operating subsidiaries, AntriaBio Delaware,
Inc. (“Antria Delaware”) and AntriaBio Korea (“Antria Korea”). AntriaBio, Antria Delaware, and Antria Korea
are collectively referred to herein as the “Company”.
Note 2 Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited interim financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the
rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions
to Form 10-Q and Article 8 of Regulation S-X.
The unaudited interim financial statements
should be read in conjunction with the Company’s Annual Report on Form 10-K filed on September 28, 2016, which contains the
audited financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition
and Results of Operations, for the year ended June 30, 2016.
Certain information or footnote disclosures
normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for
interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation
of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The
interim results for the period ended March 31, 2017 are not necessarily indicative of results for the full fiscal year.
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts in the financial statements and the accompanying notes. Such estimates and assumptions impact, among others,
the following: estimated useful lives and impairment of depreciable assets, the fair value of share-based payments and warrants,
fair value of derivative instruments, estimates of the probability and potential magnitude of contingent liabilities and the valuation
allowance for deferred tax assets due to continuing and expected future operating losses. Actual results could differ from those
estimates.
Risks and Uncertainties
The Company's operations may be subject to
significant risk and uncertainties including financial, operational, regulatory and other risks associated with a preclinical stage
company, including the potential risk of business failure. See Note 3 regarding going concern matters.
Fixed Assets
Fixed assets are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the estimated useful lives.
Research and Development Costs
Research and development costs are expensed
as incurred and include salaries, benefits and other staff-related costs; consultants and outside costs; material manufacturing
costs; and facilities and other costs. These costs relate to research and development costs without an allocation of general and
administrative expenses.
Fair Value of Financial Instruments
Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands
disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
|
·
|
Level 1: Quoted prices for identical assets and liabilities in active markets;
|
|
·
|
Level 2: Quoted prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant
inputs and significant value drivers are observable in active markets; and
|
|
·
|
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or
significant value drivers are unobservable.
|
The carrying amounts of financial instruments
including cash, accounts payable and accrued expenses, and convertible notes payable approximated fair value as of March 31, 2017
and June 30, 2016 due to the relatively short maturity of the respective instruments.
The warrant derivative liability recorded as
of March 31, 2017 and June 30, 2016 is recorded at an estimated fair value based on a Black-Scholes pricing model. The warrant
derivative liability is a level 3 fair value measurement with the entire change in the balance recorded through earnings. See significant
assumptions in Note 9. The following table sets forth a reconciliation of changes in the fair value of financial instruments classified
as level 3 in the fair value hierarchy:
Balance as of June 30, 2016
|
|
$
|
(11,955
|
)
|
Total unrealized gains (losses):
|
|
|
|
|
Included in earnings
|
|
|
11,517
|
|
Balance as of March 31, 2017
|
|
$
|
(438
|
)
|
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern
("ASU 2014-15"), which provides
guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires
management to perform assessments of an entity's ability to continue as a going concern within one year of the date the financial
statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's
ability to continue as a going concern. We will be required to perform the going concern assessment under ASU 2014-15 beginning
with the year ending June 30, 2017. We do not expect the adoption of the new provisions to have a material impact on our financial
condition or results of operations.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall
:
Recognition and Measurement of Financial Assets and Financial Liabilities
,
which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01
will be effective for us starting on July 1, 2018, and early adoption is not permitted. We are currently evaluating the impact
that the standard will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. This update requires organizations to recognize lease assets and lease liabilities on the balance sheet
and also disclose key information about leasing arrangements. This ASU is effective for annual reporting periods beginning on or
after December 15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities as
of the beginning of an interim or annual period. We will be required to adopt ASU 2016-02 starting on July 1, 2019. We are currently
evaluating the impact the adoption of this ASU will have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09.
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
The update
will affect all entities that issue share-based payment awards to their employees and is effective for annual periods beginning
after December 15, 2016 for public entities. The areas for simplification in ASU 2016-09 involve several aspects of the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. We will be required to adopt this ASU starting on July 1, 2017. We are currently
evaluating the impact the adoption of this ASU will have on our consolidated financial statements.
Note 3 Going Concern
As reflected in the accompanying financial
statements, the Company has a net loss of $14,088,396 and net cash used in operations of $9,667,825 for the nine months ended March
31, 2017, working capital of $2,829,405 and stockholders’ equity of $8,460,242 and an accumulated deficit of $58,133,226
at March 31, 2017. In addition, the Company is in the preclinical stage and has not yet generated any revenues. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company expects that its current cash resources
as well as expected lack of operating cash flows will not be sufficient to sustain operations for a period greater than one year.
The ability of the Company to continue its operations is dependent on Management's plans, which include continuing to raise capital
through equity or debt based financings. There can be no assurances that such capital will be available to us on acceptable terms,
or at all.
The accompanying financial statements have
been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets
or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 Fixed Assets
The following is a summary of fixed assets
and accumulated depreciation:
|
|
Useful
|
|
|
|
|
|
|
|
|
Life
|
|
March 31, 2017
|
|
|
June 30, 2016
|
|
Furniture and fixtures
|
|
5 - 7 years
|
|
$
|
75,034
|
|
|
$
|
62,730
|
|
Lab equipment
|
|
3 - 15 years
|
|
|
3,847,550
|
|
|
|
3,589,615
|
|
Leasehold Improvements
|
|
5 - 7 years
|
|
|
3,247,038
|
|
|
|
3,211,575
|
|
|
|
|
|
|
7,169,622
|
|
|
|
6,863,920
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
(1,708,508
|
)
|
|
|
(879,250
|
)
|
|
|
|
|
$
|
5,461,114
|
|
|
$
|
5,984,670
|
|
Depreciation expense was $282,829 and $256,404
for the three months ended March 31, 2017 and 2016, respectively and was $829,258 and $476,941 for the nine months ended March
31, 2017 and 2016, respectively.
Note 5 Related Party Transactions
During the three and nine months ended March
31, 2017, the Company incurred investor relations expenses of $33,878 and $90,803, and general and administrative expenses of $13,829
and $13,829, respectively, for services performed by a related party of the Company and included in the statement of operations.
During the three and nine months ended March 31, 2016, there were no related party transactions.
Note 6 Convertible Notes Payable
From 2010 to 2014, the Company issued several
series of convertible promissory notes for which principal and interest were due between six months and two years after issuance.
The convertible notes allowed investors to convert their shares into common stock at the time of certain qualifying events with
some of the notes also issuing warrants at the time of conversion.
On March 31, 2014, the Company closed on an
equity transaction which qualified as a “qualified financing” as such the $2,703,000 in 2013 Notes and the accrued
interest was converted into 2,186,838 shares of our common stock. The Company also converted $4,275,172 of the 2010, 2011 and
2012 Notes and accrued interest into 3,111,126 shares of our common stock. The remaining balance of any debt discounts on the
notes converted was recorded into interest expense at the time of the conversion.
During the nine months ended March 31, 2017,
one convertible note with a balance of $50,000 and accrued interest converted into 58,350 shares of common stock. As of March
31, 2017 and June 30, 2016, the convertible notes outstanding balance was $10,000 and $60,000, respectively. As of March 31, 2017,
all of the outstanding convertible notes have matured and payments were due. The convertible notes which have not been repaid
or converted continue to accrue interest at a rate of 8%.
Note 7 Series A Convertible Preferred
Stock
On December 7, 2015, the Board of Directors
authorized fifteen million shares of Series A Convertible Preferred Stock (“Series A Stock”). The Series A Stock had
a conversion feature at the option of the holder that could be converted at any time at a conversion rate of $1.95, subject to
adjustment, into common stock. The shares also had a mandatory conversion feature at the same conversion rate if one of the following
events occurs: 1) Upon vote or consent of 2/3 of the then outstanding Series A Stock; 2) Upon the Company’s listing to NASDAQ
Stockmarket or the NYSE MKT and the Company’s common stock trades for 30 days for at least 155% of the Series A Stock conversion
price; or 3) the Company closes an underwritten public offering of at least $15 million in gross proceeds with an offering price
of at least 155% of the Series A Stock conversion price. The Series A Stock’s conversion price was subject to weighted average
anti-dilution protection, as defined, and was subject to adjustments for stock splits, dividends, and similar events. The Series
A Stock was mandatorily redeemable ten years after the issuance date or upon a liquidation event, as defined, which included a
change in control and therefore recorded before stockholders’ equity on the consolidated balance sheet. The Series A Stock
was entitled to an annual dividend of 6% based on the original issuance price, compounded quarterly. The dividend was cumulative
and was to be paid in shares of Series A Stock. The accrued dividends were payable upon redemption or conversion. The Series A
Stock had voting rights equal to common stockholders as if the Series A Stock converted into common stock on the record date of
the vote. The Series A Stock also had liquidation preferences over other stockholders.
On December 10, 2015, the Company closed an
initial offering of its Series A Stock with an offering price of $1.95 per share. The Company issued 1,025,699 shares and received
net proceeds of $1,803,548 after the placement agent compensation and issuance costs paid of $105,715 and a warrant with a fair
value of $90,852 recorded as issuance costs. On March 2, 2016, the Company closed a second offering of its Series A Stock with
an offering price of $1.95 per share. The Company issued 1,716,487 shares and received net proceeds of $2,956,975 after the placement
agent compensation and issuance costs paid of $231,214 and a warrant with a fair value of $159,311 recorded as issuance costs.
On April 12, 2016, the Company closed a final offering of its Series A Stock with an offering price of $1.95 per share. The Company
issued 512,820 shares and received net proceeds of $1,000,000 as there were no placement agent compensation or issuance costs.
The issuance costs were being accreted over the ten-year life of the Series A Stock of which $22,846 was accreted during the year
ended June 30, 2016.
Through June 24, 2016, the Company declared
and issued 71,708 shares of Series A Stock as dividends on the current outstanding shares of Series A Stock.
On June 24, 2016, the Company and the stockholders
of the Series A Preferred Stock consented to convert all of the shares of Series A Preferred Stock into common stock. The conversion
occurred at a conversion price of $1.95 per share. The Company then entered into an Exchange Agreement with each former Series
A stockholder to exchange the Conversion Shares into shares of common stock and related warrants equal to the Series A Preferred
Stock purchase price plus accrued dividends at an exchange rate of $1.10 per Exchange Share and related Exchange Warrant. The Company
converted and cancelled 3,326,714 shares of Series A Preferred Stock and issued 5,897,677 Exchange Shares and Exchange Warrants.
As the Series A stockholders received additional securities over what would have been received in the original conversion terms
the transaction was considered an induced conversion. The Exchange Shares and Exchange Warrants received are recorded at the fair
value on the date they were received. The excess of the fair value of the securities received over the fair value of the securities
the stockholders would have received under the original terms on the date of conversion was $5,811,700 and was recorded as a deemed
dividend as additional paid-in capital at the time of conversion. The Company then recorded a gain on the exchange of $2,929,084,
which was also recorded into additional paid in capital. As a result of the conversion and exchange of the Series A Preferred Stock,
the Series A Preferred Stock is no longer deemed outstanding, and all rights with respect to such stock ceased and terminated.
Note 8 Shareholders’ Equity
During 2016, the Company entered into a private
placement transaction in which the Company issued 4,875,020 units to accredited investors. Each investor was issued either Class
A Units or Class B Units of the Company. Each Class A Unit received one share of common stock and one-half of one common share
purchase warrant. If the investor had previously invested in the Company they were eligible for a Class B Unit which received one
share of common stock and one common share purchase warrant. Each common share purchase warrant is exercisable at $1.65 per share
and will expire 60 months following the issuance. As of June 30, 2016, the Company received net proceeds of $4.8 million after
the placement agent compensation and issuance costs paid of $553,428 and $500,321 of warrant expense recorded as issuance costs.
During the nine months ended March 31, 2017,
the Company closed additional private placement transactions in which the Company issued 5,783,184 units to accredited investors.
Each investor was issued either Class A Units or Class B units of the Company. Each Class A Unit received one share of common stock
and one-half of one common share purchase warrant. If the investor had previously invested in the Company they were eligible for
a Class B Unit which received one share of common stock and one common share purchase warrant. Each common share purchase warrant
is exercisable at $1.65 per share and will expire 60 months following the issuance. As of December 31, 2016, the Company received
net proceeds of $5.2 million after the placement agent compensation and issuance costs paid of $683,194 and $516,550 of warrant
expense recorded as issuance costs. The Company also entered into a private placement transaction in which the Company issued common
stock to accredited investors at an offering price of $1.00 per share. As of March 31, 2017, the Company received gross proceeds
of $4.5 million as there was no placement agent compensation. On May 4, 2017, the Company received an additional $2.2 million
in gross proceeds on the offering.
The Company has not declared or paid any
cash dividends or returned any capital to common stockholders as of March 31, 2017.
Note 9 Stock-Based
Compensation
Options -
AntriaBio adopted individual
stock option plans in January 2013 for four officers and/or directors of the Company. The stock option plans granted 1,500,000
option shares with an exercise price of $4.50 per share and had fully vested as of June 30, 2016. In June 2013, AntriaBio adopted
individual stock option plans for two consultants of the Company. The stock option plans granted 8,334 shares with an exercise
price of $4.50 per share and had fully vested as of June 30, 2015.
On March 26, 2014, the Company adopted the
AntriaBio, Inc. 2014 Stock and Incentive Plan which allows the Company to issue up to 3,750,000 of common stock in the form of
stock options, incentive options or common stock. The Company had granted 3,295,000 of these shares to current employees and directors
of the Company as of June 30, 2016. The options have an exercise price from $1.29 to $3.44 per share. The options vest monthly
over four years, with some options subject to a one year cliff before options begin to vest monthly.
On February 23, 2015, the Company adopted the
AntriaBio, Inc. 2015 Non Qualified Stock Option Plan which allows the Company to issue up to 6,850,000 of common stock in the form
of stock options. The Company had granted 4,397,000 of these shares to current employees and directors of the Company as of June
30, 2016 and granted an additional 90,000 of these shares to current employees as of December 31, 2016. The options have an exercise
price of from $1.00 to $2.06 per share. The options vest monthly over 4 years with some options subject to a one year cliff before
options begin to vest monthly.
On October 31, 2016, the Company adopted the
AntriaBio, Inc. 2016 Non Qualified Stock Option Plan which allows the Company to issue up to 35,000,000 of common stock in the
form of stock options. The Company had granted 28,545,000 of these shares to current employees and directors of the Company, of
which 4,360,000 of the granted shares were never issued as the Board determined to cancel the options as of March 31, 2017. The
options have an exercise price between $1.00 and $1.20 per share. The options vest monthly over 4 years, except for 12,190,000
of the options which do not begin to vest until specific events have occurred and then begin to vest monthly over 4 years.
AntriaBio has computed the fair value of all
options granted that have begun vesting using the Black-Scholes option pricing model. The options that require specific events
before they begin to vest are not valued until the specific event has occurred. In order to calculate the fair value of the options,
certain assumptions are made regarding components of the model, including the estimated fair value of the underlying common stock,
risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant
adjustments to valuation. AntriaBio estimated a volatility factor utilizing comparable published volatility of several peer companies.
Due to the small number of option holders and all options being to officers and/or directors, AntriaBio has estimated a forfeiture
rate of zero as the value of each option holder is calculated individually. AntriaBio estimates the expected term based on the
average of the vesting term and the contractual term of the options. The risk-free interest rate is based on the U.S. Treasury
yield in effect at the time of the grant for treasury securities of similar maturity.
AntriaBio has computed the fair value of all
options granted during the nine months ended March 31, 2017 using the following assumptions:
Expected volatility
|
|
|
74% - 80
|
%
|
Risk free interest rate
|
|
|
1.46% - 2.43
|
%
|
Expected term (years)
|
|
|
7
|
|
Dividend yield
|
|
|
0
|
%
|
AntriaBio has computed the fair value
of all options granted during the year ended June 30, 2016 using the following assumptions:
Expected volatility
|
|
|
97% - 100
|
%
|
Risk free interest rate
|
|
|
1.69% -1.91
|
%
|
Expected term (years)
|
|
|
7
|
|
Dividend yield
|
|
|
0
|
%
|
Stock option activity is as follows:
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
Outstanding, June 30, 2015
|
|
|
8,702,418
|
|
|
$
|
2.78
|
|
|
|
7.1
|
|
Granted
|
|
|
285,000
|
|
|
$
|
1.07
|
|
|
|
|
|
Forfeited
|
|
|
(40,000
|
)
|
|
$
|
1.66
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
8,947,418
|
|
|
$
|
2.73
|
|
|
|
6.2
|
|
Granted
|
|
|
24,275,000
|
|
|
$
|
1.20
|
|
|
|
|
|
Forfeited
|
|
|
(63,021
|
)
|
|
$
|
1.15
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
33,159,397
|
|
|
$
|
1.61
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2017
|
|
|
6,946,771
|
|
|
$
|
2.73
|
|
|
|
5.4
|
|
Stock-based compensation expense related to
the fair value of stock options was included in the statement of operations as research and development – compensation and
benefits expense of $515,821 and $297,925 and as general and administrative – compensation and benefits expense of $896,176
and $613,710 for the three months ended March 31, 2017 and 2016, respectively. Stock-based compensation expense related to the
fair value of stock options was included in the statement of operations as research and development – compensation and benefits
expense of $1,265,591 and $917,891 and as general and administrative – compensation and benefits expense of $2,272,372 and
$1,959,737 for the nine months ended March 31, 2017 and 2016, respectively. The unrecognized stock-based compensation expense
at March 31, 2017 is $12,915,327. AntriaBio determined the fair value as of the date of grant using the Black-Scholes option pricing
method and expenses the fair value ratably over the vesting period.
On May 12, 2017, the Board and members
of management agreed to cancel 1,166,667 option shares out of the individual stock option plans granted in 2013 and 11,090,000
option shares out of the 2016 Non Qualified Stock Option Plan.
Warrants
-
AntriaBio issued
warrants to agents in conjunction with the closing of various financings and issued warrants in private placements as follows:
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
Outstanding, June 30, 2015
|
|
|
19,016,391
|
|
|
$
|
2.33
|
|
|
|
3.0
|
|
Warrants issued in stock conversion
|
|
|
5,897,677
|
|
|
$
|
1.65
|
|
|
|
|
|
Warrants issued in private placements
|
|
|
3,043,669
|
|
|
$
|
1.65
|
|
|
|
|
|
Warrants issued to placement agents
|
|
|
933,639
|
|
|
$
|
1.61
|
|
|
|
|
|
Warrants issued for investor relations
|
|
|
103,000
|
|
|
$
|
1.60
|
|
|
|
|
|
Warrants cancelled
|
|
|
(30,000
|
)
|
|
$
|
3.44
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
28,964,376
|
|
|
$
|
2.11
|
|
|
|
3.1
|
|
Warrants issued in private placements
|
|
|
3,248,184
|
|
|
$
|
1.65
|
|
|
|
|
|
Warrants issued to placement agents
|
|
|
536,150
|
|
|
$
|
1.65
|
|
|
|
|
|
Warrants issued for consulting services
|
|
|
250,000
|
|
|
$
|
1.00
|
|
|
|
|
|
Warrants expired
|
|
|
(307,261
|
)
|
|
$
|
2.34
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
32,691,449
|
|
|
$
|
1.73
|
|
|
|
3.9
|
|
Year ended June 30, 2016:
The Company
issued warrants to purchase 5,897,677 shares of common stock at a price of $1.65 per share, exercisable through March 2021 in connection
with the issuance of units in a preferred stock conversion. The Company issued warrants to purchase 3,043,669 shares of common
stock at a price of $1.65 per share, exercisable through June 2021 in connection with the issuance of units in private placements.
The Company issued warrants to the placement agent to purchase 184,490 shares of common stock at a price of $2.34 per share. On
June 24, 2016, the Company modified the warrant to purchase 184,490 shares of common stock, by replacing the warrant with warrants
to purchase 327,046 shares of common stock at a price of $1.32 per share, exercisable through December 2023 in connection with
the Series A Preferred Stock Offering. The Company issued warrants to the placement agent to purchase 87,500 shares of common stock
at a price of $2.50 per share, exercisable through December 2022 in connection with the Series A Preferred Stock Offering. The
Company issued warrants to the placement agents to purchase 519,093 shares of common stock at a price of $1.65 per share, exercisable
through December 2023 in connection with the private placement. The Company issued warrants to purchase 9,000 shares of common
stock at a price of $1.38 per share in connection with investor relations services. The Company issued warrants to purchase 24,000
shares of common stock at a price of $1.34 per share in connection with investor relations services. The Company issued warrants
to purchase 60,000 shares of common stock at a price of $1.85 per share in connection with investor relations services. The Company
issued warrants to purchase 10,000 shares of common stock at a price of $0.96 per share in connection with investor relations services.
For the Nine Months Ended March 31,
2017:
The Company issued warrants to purchase 3,248,184 shares of common stock at a price of $1.65 per share, exercisable
through October 2021 in connection with the issuance of units in private placements. The Company issued warrants to the placement
agent to purchase 536,150 shares of common stock at a price of $1.65 per share. The Company issued warrants to purchase 250,000
shares of common stock at a price of $1.00 per share in connection with a consulting agreement. The warrants to purchase 250,000
shares of common stock vest monthly over four years which is the term of the consulting agreement.
During the nine months ended March 31,
2017, the Company offered to certain warrant holders the ability to amend their current warrants to set their exercise price at
$1.65 for their warrants, extend the warrant exercise date until January 30, 2020 and add an acceleration clause to the warrant.
All other warrant terms remained the same. If the investor chose not to amend their warrants, then the original warrant terms would
remain in place. The offer to amend expired on January 31, 2017 and warrants to purchase 15,474,883 shares of common stock were
amended. As this was a modification to the original warrants, the excess of the fair value of the warrants after the modification
over the fair value of the warrants immediately prior to the modification was $3,366,070 and was recorded as the fair value of
warrants and as a deemed dividend as additional paid-in capital at the time of the modification. The Company also had warrants
to purchase 307,261 shares of common stock expire as of March 31, 2017.
The warrants exercisable for 66,667
shares of common stock are accounted for under liability accounting for the shares that have vested and were recorded at
their fair value on the date of issuance of $50,365 as a liability and as professional fees and investor relation expense.
Warrants for 30,000 shares of common stock were cancelled as of December 31, 2015 as the vesting events had not occurred. The
fair value as of March 31, 2017 and June 30, 2016 was $438 and $11,955, respectively which is reflected as a liability with
the fair value adjustment recorded as derivative gains or losses on the consolidated statements of operations.
The warrants exercisable for the 5,897,677
shares of common stock were accounted for under equity treatment and fair valued as of the date of issuance. The fair value of
the warrants was valued at $3,497,914 and was recorded into additional paid-in capital. The warrants exercisable for the 3,043,558
shares of common stock were accounted for under equity treatment and were recorded at the allocated fair value as of the date of
issuance. The estimated fair value of the warrants was $1,667,630 and the allocated fair value of $1,202,336 was recorded into
additional paid-in capital.
The warrants exercisable for 184,490 shares
of common stock were accounted for under equity treatment and were fair valued as of the date of issuance. The fair value of the
warrants was valued at $184,673 and recorded as additional paid-in-capital and Series A Convertible Preferred Stock as issuance
costs. On June 24, 2016, the warrants were modified and in place of the warrants to purchase 184,490 shares were replaced by warrants
to purchase 327,046 shares of common stock. The change in the fair value between the old warrants and the new warrants on the date
of modification was calculated as $113,521 and was recorded as additional paid-in-capital and as issuance costs. The warrants exercisable
for 87,500 shares of common stock were accounted for under equity treatment and were fair valued as of the date of issuance. The
fair value of the warrants was valued as $65,490 as additional paid-in-capital and Series A Convertible Preferred Stock as issuance
costs. The warrants exercisable for 519,093 shares of common stock were accounted for under equity treatment and were fair valued
as of the date of issuance. The fair value of the warrants was valued at $386,800 and recorded as additional paid-in-capital and
as issuance costs.
The warrants exercisable for the 9,000
shares of common stock were accounted for under the equity treatment and were fair valued as of the date of issuance. The fair
value of the warrants was valued at $11,407 and recorded as additional paid-in-capital and investor relations. The additional warrants
exercisable for the 24,000 shares of common stock were accounted for under the equity treatment and were fair valued as of the
date of issuance. The fair value of the warrants was valued at $20,943 and recorded as additional paid-in-capital and investor
relations. The warrants exercisable for the 60,000 shares of common stock were accounted for under the equity treatment and were
fair valued as of the date of issuance. The fair value of the warrants was valued at $34,122 and recorded as additional paid-in-capital
and investor relations. The warrants exercisable for the 10,000 shares of common stock were accounted for under the equity treatment
and fair valued as of the date of issuance. The fair value of the warrants was valued as $6,500 and recorded as additional paid-in-capital
and investor relations.
The warrants exercisable for the 3,248,184
shares of common stock were accounted for under equity treatment and were recorded at the allocated fair value as of the date
of issuance. The estimated fair value of the warrants was $2,759,015 and the allocated fair value of $1,262,413 was recorded into
additional paid-in capital. The warrants exercisable for 536,150 shares of common stock were accounted for under equity treatment
and were fair valued as of the date of issuance. The fair value of the warrants was valued at $516,550 and recorded as additional
paid-in-capital and as issuance costs. The warrants exercisable for the 250,000 shares of common stock are accounted for under
the equity method of accounting and are fair valued monthly at the date that the warrants vest. As of March 31, 2017, warrants
to purchase no shares of common stock had vested and nothing had been recorded into equity.
These warrants were valued using the Black-Scholes
option pricing model on the date of issuance. In order to calculate the fair value of the warrants, certain assumptions were made
regarding components of the model, including the closing price of the underlying common stock, risk-free interest rate, volatility,
expected dividend yield, and warrant term. Changes to the assumptions could cause significant adjustments to valuation. AntriaBio
estimated a volatility factor utilizing comparable published volatilities of several peer companies. The risk-free interest rate
is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.
The Black-Scholes valuation methodology
was used because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant
assumptions for the warrants issued for the nine months ended March 31, 2017 were as follows:
Expected volatility
|
|
|
24%
- 111
|
%
|
Risk free interest rate
|
|
|
0.45%
- 1.56
|
%
|
Warrant term (years)
|
|
|
0
- 7
|
|
Dividend yield
|
|
|
0
|
%
|
Significant assumptions for the warrants
issued for the year ended June 30, 2016 were as follows:
Expected volatility
|
|
|
87
- 151
|
%
|
Risk free interest rate
|
|
|
0.45%
- 2.03
|
%
|
Warrant term (years)
|
|
|
1
- 7.5
|
|
Dividend yield
|
|
|
0
|
%
|
Note 10 Income Taxes
Income tax expense during interim periods
is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently
occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim
period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the
year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and
the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision
for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax
environment changes.
In the nine months ended March 31, 2017,
the Company did not record any income tax provision due to expected future losses and full valuation allowance on its deferred
tax assets.
Note 11 Commitments and Contingencies
Lease Commitments –
In May
2014, the Company entered into a lease of approximately 27,000 square feet of office, laboratory and clean room space to be leased
for seventy-two months. The lease requires monthly payments of $28,939 adjusted annually by approximately 3% plus triple net expenses
monthly of $34,381 adjusted annually. The Company also made a security deposit of $750,000 which is held by the landlord, of which
$375,000 has been returned to the Company and the remaining balance will be returned gradually over the next several years.
On March 17, 2017, the Company entered
into a lease of approximately 20,000 square feet of office space to be leased for eighty-two months. The lease requires monthly
payments of $28,425 adjusted annually plus triple net expenses monthly of $28,410 adjusted annually. The Company also made a security
deposit of $56,851 which will be returned at the end of the lease.
On March 17, 2017, the Company
sub-leased their original approximately 10,000 square feet of office space to another company. The sublease is for eighty-two
months unless the Company is unable to extend its current lease then the sub-lease will expire on March 31, 2020. The
Company is to receive monthly payments of $12,828 adjusted annually plus triple net expenses monthly of $12,828 adjusted
annually. The Company also received a security deposit of $25,046 which will be returned at the end of the lease.
As of March 31, 2017, the minimum rental
commitment under the leases are as follows:
|
|
Operating Leases
|
|
|
Sub-lease Income
|
|
|
Total
|
|
Year Ending June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
170,673
|
|
|
$
|
(37,570
|
)
|
|
$
|
133,103
|
|
2018
|
|
|
691,422
|
|
|
|
(152,005
|
)
|
|
|
539,417
|
|
2019
|
|
|
712,360
|
|
|
|
(157,187
|
)
|
|
|
555,173
|
|
2020
|
|
|
664,696
|
|
|
|
(148,551
|
)
|
|
|
516,145
|
|
2021
|
|
|
338,392
|
|
|
|
-
|
|
|
|
338,392
|
|
Thereafter
|
|
|
917,200
|
|
|
|
-
|
|
|
|
917,200
|
|
|
|
$
|
2,239,151
|
|
|
$
|
(495,313
|
)
|
|
$
|
1,743,838
|
|
Legal Matters
- From time to
time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of
business.
As of March 31, 2017, a party initiated a lawsuit against the Company,
directors and officers of the Company for a shareholder demand related to corporate governance and employee stock option
plans. A settlement has been reached which is pending approval by the Court of Chancery of the State of Delaware and
does not have a material effect on the results of operations other than disclosed in Note 9. There are no other proceedings
in which any of our directors, officers or affiliates, or any registered or beneficial shareholders, is an adverse party or
has a material interest adverse to our interest.